I’ve heard from quite a few people lately who have reservations about having money in the stock market. So the question for today is: When should you stop investing in stocks?
The first thing to remember is that stocks are the most common investment that offers the best long-term growth. That’s true, but that doesn’t mean you have to use them. You can successfully retire with all your money in a checking account.
It just means you’ll either have to save more while you’re working or spend less when you’re retired compared to a portfolio that includes stocks.
What you need to watch are the times (like now) when stocks go down for a while. This little “problem” with inventory can cause you problems in several ways. Let’s say you need to buy a car within the next two years.
The money you save for it shouldn’t go into the purse. There are myriad times when stocks go down and take over two years to get back to where they were.
Investing in them when you have a purchase that will happen before they have time to recover is probably foolish or at best a gamble. Don’t gamble with your ability to drive to work or your grandkids’ soccer games.
The other reason you shouldn’t invest in stocks is if you’re the type of person who wants to sell after falling 20% (or whatever it is when you read this) to stop the bleeding.
You also shouldn’t invest in stocks if you’re the type of person who would sell if they fell another 10, 20, or 30% from here. Selling after the stock market crash is not smart.
You have to be the kind of person who can bring the market down and up. If you can’t do that, you shouldn’t be in the stock market.
And if you tell me that you’ll go out and come back when everything calms down, I don’t want to hear it. Several times a year I tell my readers that I don’t know of any good way to get it right on a regular basis.
Instead, most professional money managers would recommend that you mix stocks other than stocks to limit your overall portfolio decline.
I agree with that, but if you’re the type of person who would look inside that portfolio, see the stock portion go down 40%, and then sell even though it’s only a small portion of your portfolio, then you just shouldn’t be in stocks. Try to get this one out, sell it once things get better, and don’t look back.
May Ukraine remain free.
Gary SilvermanCFP® is the founder of Personal Money Planning, LLC, a Wichita Falls retirement planning and investment management firm and author of Real World Investing.